Industrial Market Faces Supply Challenges

LOS ANGELES—The central Los Angeles region is one of the tightest industrial markets in the nation, according to Lee & Associates‘ 2Q14 national industrial report, released exclusively to GlobeSt.com earlier this week. While reviewing the national market, the report also takes a micro look at the central L.A. region, which includes downtown, Vernon, Commerce and the mid-counties, to reveal the strengths and challenges in the market.

One of those challenges is limited supply and high demand. Although Los Angeles is ranked one of the nation’s top industrial markets, the limited supply is hindering absorption rates in the market, which had been positive for the past 12 quarters. It is a problem that is not easily solved, considering that there is little available land for development. The supply constraint has also put upward pressure on land prices, making construction costs unrealistic for a return on traditional industrial product. For that reason, some developers are finding alternative, non-industrial uses—like conversion to office or multifamily—for older industrial product that has been over priced for industrial users. This debacle has brought industrial development to a near standstill in these markets.